The Investment Square for Novices

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There’s an old saying that those people who suddenly come into money most probably won’t be wealthy forever. At times this might be because of just lavish spending, but on other occasions it could be due to poor investment decisions.

Unfortunately, unless you are particularly gifted, your shrewdness in relation to investing will most probably only improve through experience.

In fact, most people don’t really have much of an idea on what the various types of investments are; most simply group them all into one category. As it turns out there are four main groups and if you are serious about getting the most out of your money, you should understand the four from top-to-bottom. We’ll now take a look at each in detail to help any new investor out there.

Bonds

If you’re in the business for a safe option, they don’t come much safer than bonds. These are made with the government, who will in turn provide you with a fixed interest rate.

As long as you reside in a relatively safe country, where bankruptcy isn’t an issue, bonds provide a sure-fire way to deliver a set amount over a set period of time. The downside is that the returns are generally much smaller than other forms of investment and this means that unless the bank’s interest rates happen to be particularly low, they are hardly a lucrative option.

Stocks

Read the last section and decided you want more bang for your buck? Stocks might be the answer.

For those unaware, this investment tactic involves you effectively purchasing a percentage of a business. You can therefore vote on the big decisions at annual meetings while depending on the company’s dividend approach, you can also ‘withdraw’ the profits on a set basis.

Unfortunately, these dividend approaches aren’t always black and white. Some companies won’t even pay dividends, meaning that your investment rests solely on the value of the share.

As anyone who catches a glimpse of any stock-related segments on the news channels will testify, this is a risky approach – even if the potential rewards are much bigger.

Mutual Funds

Something that is similar to stocks, but perhaps isn’t quite as risky, are mutual funds.

In simple terms, these are a group of stocks managed by a professional who knows the market inside-out. It means that you immediately have that expertise on board, which most new investors just don’t have.

Of course, things can still go wrong and bad decisions can be made, while you will have to shell out a fee to the professional who is managing the mutual fund.

Alternative investments

One could pen a whole book on alternative investments; there really are that many to choose from. From FOREX to real estate, the options are endless and generally involve a high risk yet high reward strategy. This is one of the reasons why sound investment advice from someone like Equity Bank’s Steve Liefschultz is required as most novice investors just won’t be able to grasp how to make these mediums profitable.

Some of the tactics used are complicated to say the least and while the profit margins can be significantly bigger than the other three approaches we have mentioned, the potential losses can be extravagant as well.

 

Posted in: Investments

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